PwC: Media M&A’s Still Hot In ’11; But Long-Term Debt Worries Persist

Not that anyone needed more proof that 2010 was a busy year for media deals, PwC’s look at M&A activity in the space finds that the amount of entertainment and media transactions outpaced the general market as a whole. However, the number of deals is one thing. PwC’s overview also found that the collective values of 2010’s media dealmaking was a little less than in 2009.

In 2010, completed E&M deal volume was up slightly by 3 percent to 804 transactions. The total completed and disclosed deal value fell from $37.2 billion in 2009 to $33.5 billion in 2010, PwC said. The report cautioned that a number of transactions did not publicly release the size of the deals, which could be the reason for the lower dollar figure..

The big driver behind the uptick in deal volume was Internet software & services (B2C) deals. The same already appears true for 2011, as PwC counted more than 200 deals worth an aggregate $24 billion are currently pending, which includes the Comcast.NBCU (NYSE: GE) merger which is expected to close Friday.

All the firms that look at M&As have their own particular areas of concentration, which results in some differences. But three recent reports in the past few weeks have shown how strong deal activity was in 2010.

Dow Jones (NSDQ: NWS) VentureSource, which looks at all industries, not just media, recently tallied up 445 M&A deals that raised $33.9 billion in 2010, compared to 381 transactions that raised $20.8 billion in 2009. The number of IPOs, much in the news now with Demand Media’s and Nielsen’s respective filings on Wednesday, showed 46 venture-backed IPOs in 2010, compared to only 8 in 2009. DJ VentureSource is confident that 2011 will produce even more M&A activity and a jump in IPOs too.

The Jordan, Edmiston Group, looking only at media in 2010, reported that the space’s M&A landscape and found 39 percent more deals than in 2009. The media investment bank tallied 845 transactions with a collective value of $43.3 billion. Meanwhile, fellow media i-bank Petsky Prunier said it saw M&A’s rise by 49 percent, with 1,019 transactions for a total of $51.5 billion. Despite the disparity, both agree on one thing: the trends for 2011 are only looking higher.

In PwC’s outlook for media M&A’s, it expects more cross-border deals, as companies look to expand their services to other markets. That will be especially true for companies in the social media segment.

Video games are going to be a particularly hot area in 2011, it says. PwC is calling for consolidation in the video games segment, as major publishers seek to add to their portfolios with developers that can generate new hit games as well as ones that transition well across platforms, e.g. from phone to tablet to internet-enabled TV.

Lastly, PwC anticipates traditional media companies to look to deals as a way to position themselves against the almost-merged Comcast (NSDQ: CMCSA) and NBCU behemoth.

Looking further out, PwC cites Standard & Poor’s concerns about the heavy debt burdens companies in the E&M space will experience in the years ahead. “Of particular concern is the upcoming “maturing wall” in 2013–2015, when more than $145 billion in investment-grade and speculative-grade E&M industry debt comes due,” PwC says. “Depending on the pace of economic recovery, many underperforming E&M companies still carrying unsustainable debt levels could face increasingly distressed scenarios heading into this 2013–2015 period.”